Collaboration in Civic Spheres

U.S. Senate Hearings: Fraud In For-Profit Education Industry

by Matt Rosenberg August 9th, 2010

OVERVIEW: Enrollment in U.S. for-profit colleges has grown to 1.8 million students, five times the total in recent years. More than three-quarters attend institutions run by publicly-traded corporations such as Apollo Corp. (University of Phoenix), Education Management Corporation (Argosy University, Art Institute schools, and 38 percent-owned by Goldman Sachs), Kaplan University (owned by Washington Post Co.), and Corinthian Colleges (brands include Everest College). In 2009, students at for-profit colleges received $20 billion in federal loans and $4 billion in federal Pell Grants. But the sector is known for high drop-out rates, high-pressure sales tactics, deceptive marketing, steep pricing compared to public colleges, and too often, credentials not accepted by employers or other educational institutions. Loan defaults are another concern. For-profit colleges have 9% of the students, 25% of all U.S. government Title IV education loans and grants, yet account for 44% of all Title IV defaults. Certificate, associate and bachelor’s degrees are offered in a wide variety of fields, from vocational or technical to white-collar professional. Classes can be online-only, or partially online.

Public Data Ferret radio segment on this article, 8/11/10, KOMO-AM 1000, Seattle

A. U.S. Senate committee held hearings recently where a former admissions recruiter for one for-profit chain revealed disturbing practices and a financial analyst warned of parallels between the current course of the for-profit college sector and the sub-prime mortgage meltdown (testimonies below). One of the hearings also highlighted an undercover investigation by The U.S. General Accountability Office into practices at 15 for-profit colleges which receive an especially high proportion of funding from federal loans or grants.

Though the G.A.O. report does not name the 15 schools, Inside Higher Ed does:

Colleges Visited by GAO Location
University of Phoenix Arizona
Everest College Arizona
Westech College California
Kaplan College California
Potomac College District of Columbia
Bennett College District of Columbia
Medvance Institute Florida
Kaplan College Florida
College of Office Tech Illinois
Argosy University Illinois
University of Phoenix Pennsylvania
Anthem Institute Pennsylvania
Westwood College Texas
Everest College Texas
ATI Career Training Texas

KEY LINK#1: Testimony of U.S. Government Accountability Office to U.S. Senate Committee on Health, Education, Labor And Pensions, “For-Profit Colleges: Undercover Testing Finds Colleges Encouraged Fraud And Engaged In Deceptive And Questionable Marketing Practices,” 8/4/10

HIGHLIGHTS:

  • All 15 schools investigated “made deceptive or otherwise questionable statements to G.A.O.’s undercover applicants.”
  • Four of the 15 schools encouraged fraudulent practices to help secure federal grants or loans to be paid to the school for the applicant’s course work. Two applicants were encouraged to falsely increase the number of dependents to qualify for a Pell Grant; two others were instructed to conceal personal holdings of $250,000 in order to qualify for federal financial aid.
  • Personnel at 13 of the 15 schools provided inaccurate or incomplete information about graduation rates. At four of the schools information to applicants on accreditation was either not provided or inaccurate.
  • College recruiters grossly exaggerated the earning potential of students after coursework completion, and lowballed the actual costs of tuition, in some cases by 20 percent and in one case by 80 percent.
  • Sham admissions tests and a variety of high-pressure sales tactics were employed.
  • Certificates for completion of specific vocational or technical class sequences were anywhere from 10 to 27 times more expensive at some of the for-profit schools investigated by G.A.O., compared to the same training at a public college in the area. Associate’s degrees at some of the for-profit schools ranged from 6 to 13 times more costly than the equivalent programs at a public college in the area.

KEY LINK #2: Testimony Of Joshua Pruyn, Former Admissions Representative, Alta College Inc., Denver, CO, to U.S. Senate Committee on Health, Education, Labor and Pensions, 8/4/10. Pruyn worked for Westwood College, an Alta College unit with 17 campuses around the U.S. and an online degree program.

  • A high school diploma or G.E.D. and $100 were all that were needed for initial enrollment. A fake interview process was designed to convey the appearance of selective admissions. A B.A. cost $75,000 but was deceptively marketed as costing $4,800 per term. Unlike most schools where there are two to three terms per year, there were five terms per year at Westwood.
  • Westwood’s Denver college was not regionally accredited, meaning B.A. credits would not transfer to qualify for post-graduate programs elsewhere. Fictitious endorsements were promoted for Westwood’s highly-promoted gaming industry training program. But it produced only three graduates in three years, none of whom was employed in the industry.
  • A “boiler-room” operation fueled dozens and dozens of calls in short succession to “leads” who filled out online forms requesting more information. High-pressure tactics based on fears and hopes of prospective students uncovered in conversations and interviews were regularly used to “close” sales.
  • Sales quotas were strictly enforced for “assistant directors of admissions.” The quotas were for student “starts,” meaning enrollees who attended class for 14 days after U.S. government financial aid had been secured. After 14 days, even if they dropped out, the government financial aid could be, and usually was, kept by the college, according to Pruyn.
  • Trips to Cancun were awarded to top salespeople, but those behind on their sales quotas were forced to make 150 calls per day. Prospective students were “often characterized and described among admissions staff as stupid, lazy and generally unaware of what was in their own best interest.” Lies were openly tolerated. One assistant director of admissions was presented with a “Best Liar” award at a team event.

KEY LINK #3: Testimony of Steven Eisman, Portfolio Manager, FrontPoint Financial Services Fund, to U.S. Senate Committee On Health, Education, Labor and Pensions, June 24, 2010

  • “The for-profit industry has grown at an extreme and unusual rate, driven by easy access to government sponsored debt in the form of Title IV student loans, where the credit is guaranteed by the government. Thus, the government, the students and the taxpayer bear all the risk and the for-profit industry reaps all the rewards. This is similar to the subprime mortgage sector in that the subprime originators bore far less risk than the investors in their mortgage paper.”
  • “The for-profit education industry accounts for 9% of the students, 25% of all Title IV disbursements but 44% of all defaults….From 1987 through 2000, the amount of total Title IV dollars received by students of for-profit schools fluctuated between $2 and $4 billion per annum….(Since 2000, annual) federal dollars flowing to the industry exploded to over $21 billion (now), a 450% increase.”
  • “In fiscal 2009, Apollo, the largest company in the industry (including the University of Phoenix chain), grew total revenues by $833 million. Of that amount, $1.1 billion came from Title IV federally-funded student loans and grants. More than 100% of the revenue growth came from the federal government. But of this incremental $1.1 billion in federal loan and grant dollars, the company spent only an incremental $99 million on faculty compensation and instructional costs – that’s 9 cents on every dollar received from the government going towards actual education. The rest went to marketing and paying the executives.”
  • “The latest trend of for-profit institutions is to acquire the dearly coveted Regional Accreditation through the outright purchase of small, financially distressed non-profit institutions and then put that school on-line.”
  • “If present trends continue, over the next ten years almost $500 billion of Title IV loans will have been funneled to this industry. We estimate total defaults of $275 billion, and because of fees associated with defaults, for-profit students will owe $330 billion on defaulted loans over the next 10 years.”

THE FOR-PROFIT EDUCATION INDUSTRY IN WASHINGTON STATE

The Washington State Higher Education Coordinating Board’s list of colleges which are authorized to operate in the state, or are exempt from re-authorization procedures includes Everest College (5 locations) (parent company, Corinthian Colleges), Argosy University and the Art Institute of Seattle (parent company, Education Management Corporation), University of Phoenix (parent company Apollo Corp., seven WA locations); and Kaplan University (parent, Washington Post Co.). State authorization does not necessarily indicate accreditation from a respected regional accreditation agency, typically required for academic credit transfers to many other colleges or univerisities, and in some cases, for consideration by employers upon program completion. Check through the U.S. Department of Education’s accreditation resources page to see if your school’s accrediting agency is recognized.

RECENT NEWS ON FOR-PROFIT COLLEGES IN WASHINGTON STATE

None of the Congressional testimony cited above specifically mentioned any Washington State for-profit college. However, some are the subject of news reports. In addition, online reviews provide additional insights for consumers into national for-profit college companies.

Bloomberg News reports:

In July, instructors at the Art Institute of Seattle raised questions about EDMC when they tried to join the American Federation of Teachers. The union lost in a 48 to 64 vote. Instructors objected to high-pressure marketing to students to take out loans they couldn’t afford, says Sandra Schroeder, president of the AFT in Washington State. The institute encourages faculty to give passing grades to students who aren’t making progress, she says, so the school can keep collecting federal aid money.

In a separate case, The Seattle PI.com reported that in May, four former employees of a shuttered Tacoma for-profit educational institution, Crown College, were indicted in federal court for fraudulently obtaining $65,000 in federal student aid and Pell grants. A 2007 story in the Seattle Times tells of Crown’s shutdown, raising issues similar to those heard in the U.S. Senate recently.

FOR-PROFIT COLLEGE AND UNIVERSITY SITES (selected)

Apollo Group
Education Management Corporation
Kaplan University
Everest College
Westwood College

ONLINE USER REVIEWS:

Argosy University, Online Degree Reviews
University Of Phoenix, Online Degree Reviews
Everest College, Online Degree Reviews
Kaplan University, Online Degree Reviews
Art Institute Of Seattle, City Search reviews
Art Institute Of Seattle, Yelp reviews


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